Gap seen widening between US Northeast gas pipeline capacity, production

Natural gas pipeline takeaway capacity additions in the US Northeast production area have yet to spur the level of further output the market was expecting, making it difficult to fill the infrastructure during certain periods, according to S&P Global Platts Analytics.

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The perspective, offered during the first day of the LDC Gas Forum Northeast conference in Boston, comes as industry leaders analyze Appalachian Basin supply, demand and pricing fundamentals heading into the next decade.

At issue is whether easing pipeline constraints are only temporary and the extent to which LNG export growth will encourage Marcellus and Utica shale producers to drill more.

"New production is not there to fill these projects, and this is only going to get worse," Luke Jackson, a Platts Analytics senior energy analyst, told attendees at the conference. "On the surface, you'd say the Northeast is evolving. I would argue, 'Not so fast.'"

Total Northeast production reached 27.3 Bcf/d on several days towards the end of December. Since then, TransCanada's Leach XPress brought online its 1.5 Bcf/d of capacity while Energy Transfer Partners' Rover Pipeline has added about 1.5 Bcf/d of capacity as well. Despite those increases, total Northeast gas production averaged 27.2 Bcf/d in May and is averaging 27.3 Bcf/d thus far in June, data compiled by Platts Analytics show.

Rather than spurring regional production growth, additional pipeline capacity has reshuffled production volumes among existing Northeast takeaway pipelines. Jackson said the gap between Northeast capacity and production could be as wide as 10 Bcf/d by late 2019.

"There is this next wave of constraints on the horizon that not a lot of the market is talking about," Jackson said.

The growth of LNG exports could be helpful to the situation, depending on how many of the dozen or so terminals being proposed as part of the so-called second wave of US liquefaction are completed.

"A big increase is coming. The question is how much more is out there and how much more is needed," Meera Bagati, manager of market analysis for NextEra Energy Resources, told the conference. "When you start to peel the layers of the onion a little bit and look at where this LNG demand is, a lot of the demand growth is going to come from really two nations -- China and India."

While fears of a global LNG supply glut have eased, some US LNG export project developers have delayed final investment decisions as they struggle to secure firm long-term contracts with buyers. There remains uncertainty about how many of the second wave of US projects will get built, and at what level the current crop of projects will be utilized toward the end of the decade.

Some of the first-wave projects have struggled to meet project timelines due to problems with construction, disputes with contractors, and bad weather, especially along the Gulf Coast, which is susceptible to heavy rains and an active hurricane season.

Freeport LNG cited flooding following Hurricane Harvey as one reason it decided to delay the expected commercial start date for its first train to September 1, 2019, from its previous target of the fourth quarter. Sempra Energy said in May its top priority is making sure the three production units at the Cameron LNG export terminal in Louisiana are online in 2019. That project has faced two prior delays. LNG

CONTRACT RENEWALS ARE BEING WEIGHED

One wildcard for the developers that have yet to begin construction is that some 14 Bcf/d, close to 30% of global LNG supply, is coming up for renewal in the next five years, Bagati said. That could provide an opening for developers to snap up a share of those long-term contracts.

"It's a big number," Bagati said.

Still, Bagati said that with buyers holding most of the cards, getting to a positive final investment decision for many developers is not going to be an easy task through 2020, Bagati said.

"In the best case, we think probably half of the projects go," she said.